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will also result in acquisition of all liabilities, but isolates them in a separate corporation, which
becomes a subsidiary. (The same result would be achieved by merging the target into a newly formed
subsidiary of Plant Supply—the so-called triangular merger.) Acquisition of the assets and liabilities
normally results in exposure to only the liabilities Morris chooses to acquire and is thus an attractive
choice for the acquirer.
Exhibit 9.3 Acquisition strategies.
Yet tax factors normally play a large part in structuring an acquisition. For example, if the target
corporation has a history of losses and thus boasts a tax-loss carryforward, Morris may wish to apply
such losses to its future profitable operations. This would be impossible if he acquired the assets and
liabilities of the target for cash, since the target corporation would still exist after the transaction,
keeping its tax characteristics to itself. Cash mergers are treated as asset acquisitions for tax purposes.
However, if the acquirer obtains the stock of the target, the acquirer has taken control of the taxable
entity itself, thus obtaining its tax characteristics for future use. This result inspired a lively traffic in
tax-loss carryforwards in years past, where failed corporations were marketed to profitable
corporations seeking tax relief.
Congress has put a damper on such activity by limiting the use of a tax-loss carryforward in each of
the years following an ownership change of more than 50% of a company‟s stock. The amount of that